Good morning, and welcome to the OneBeacon Insurance Group second quarter 2008 financial results webcast. This call is being recorded at 10 AM Eastern Time Friday, August 1, 2008. All participants are in a listen-only mode. At the conclusion of the prepared remarks, we will host a question-and-answer session.

Thank you, and good morning. On behalf of OneBeacon's management team, welcome and thank you for joining us as we review our second quarter 2008 financial results. Today's call is being hosted by Mike Miller, our Chief Executive Officer and Paul McDonough, our Chief Financial Officer. They'll be joined during the Q&A by other members of senior management.

We released our second quarter 2008 results earlier this morning. Our press release, today's slide presentation and our financial supplement are available on the Investor Relations section of our website, www.onebeacon.com. An audio replay of today's webcast will also be available on our site following this call.

Turning to slide 2. Let me remind you that any statements we make during today's call that are not historical facts constitute forward-looking statements. These statements are based on certain assumptions and analysis made by OneBeacon in lot of our experience and perception of historical trends, current conditions, and expected future developments, as well as other factors. However, actual results may differ materially from expectations.

Please refer to the summary of risk factors at the end of our earnings release as well as detailed list of risk factors contained in our Annual Report filed on Form 10-K for the fiscal year ending December 31, 2007 filed on February 29, 2008. In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date.

Slide 3. During this call, we will refer to non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with Generally Accepted Accounting Principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures accompanies the press release financial statement and is provided in the financial supplement posted on our website.

Now, let me turn the call over to Mike.

Mike Miller

Thank you, Todd, and good morning, everyone. Thanks for joining us.

Turning to page 4. We had a good quarter and we are pleased to share that with you this morning. As you note on page 4, our adjusted book value per share grew by 2.2% in both challenging insurance and investment markets.

Our GAAP combined ratio of 94.4 was driven by strong underwriting results in the quarter and also includes the Liberty Mutual litigation settlement referenced in our press release and 10-Q. And on the total return basis, our total return on invested assets was 1% for the quarter.

Turning to slide 5. Our primary insurance operations again reported as I have noted strong results. As you can see on the slide, we had excellent accident year loss ratios in all of our segments, impacted very little by the Midwestern CATs that you have heard a good deal about on other calls up to this point. And you can also see our strong second quarter calendar year results are driven by the strong accident year launch ratio numbers and not by prior year releases.

Our expense ratio of 35.2% is in line with the ongoing run rate of 35% that we have shared with you on the first quarter call of this year. On a year-to-date basis, our GAAP combined ratio is come down to 97.2%, obviously driven by the strong second quarter results after a challenging first quarter.

Turning to slide 6. We are very excited about our Hagerty relationship that we have shared with you in past at work and that was a key driver in our Specialty Lines growth we reported at 45%. In the second quarter, which was our full quarter with Hagerty, it is a representative of $43 million of premium in the quarter, and that is roughly about 20% higher than our expectations for future quarters, with an exciting relationship and one that we are in the very early stages of which will be an important part of our company going forward.

In Commercial Lines, our 4% growth is driven principally by our growth in small business, and in middle market, our growth was flat for the quarter, I think appropriately so given current market conditions. And in Personal Lines, we reported minus 6% growth in competitive markets, as you are all aware and as we've shared with you, and in addition to that influenced by our continued conservative [personal] underwriting strategy in traditional Personal Lines.

Turning to slide 7 and talking about Specialty Lines business. As you can see, we had continuing strong current accident year results in line with previous quarters. And we had 11.2% of favorable prior year development in our OneBeacon Professional Partner business. Having said that, we have not adjusted our current accident year loss ratios to reflect the continuing good news from the past, and we would anticipate that our underlying accident year loss ratios as time rolls forward will continue to produce very good results.

Our run rate expense ratio in Specialty Lines is roughly 35% given the higher cost associated with our new relationship with the Hagerty business and that would be our expectations for forward moving quarters.

Turning to slide 8, looking at the statistical premium information. As you can see on our OneBeacon Professional Partner business, over the last four quarters we have consistently seen pricing and rate changes in the minus 11% to minus 12% range. We still, as I mentioned previously, continue to believe that the business that we're writing today remains a profitable contributor to our ongoing operation as we go forward.

You can also see that in IMU the pricing was flat in the second quarter and has been bouncing around between flat and up 2% over the last year. Our premium retentions in both of the segments continues to be quite solid and in line with the previous quarter a year ago, down slightly in IMU and almost right on in OBPP. Again in more competitive markets, we're doing quite well still.

On a new business basis, we're fairly consistent with the new business levels in OBPP and IMU over the past quarters, as you can see, and as noted in other specialty, that is mostly our Hagerty new business that we've already talked about, but also includes our Accident and Health Group, which we have shared with you in the past as well as OneBeacon Government Risks endure.

Turning to page 9 in Commercial Lines. We had an excellent quarter from a current accident year basis, as you can see, a 53.9. CATs in the quarter, what CATs we had were really in Commercial Lines, up slightly from the previous quarter, but on a year-to-date basis 1.4%. So, nothing unusual, but clearly we had some impact on the Midwestern CATs in the second quarter.

Prior accident year, you can see minus 2.8% release is consistent, where we have been in previous quarters and bottom line leading to our calendar year was an LAE ratio of an excellent 53.6%. 90 combined GAAP ratio for the quarter in Personal Lines is outstanding. On a year-to-date basis the combined ratio has come down to 100%, obviously again driven by the excellent second quarter results.

Turning to slide 10, to decompose some of the activities in Commercial Lines a little bit, the renewal price change of minus 3 indicated, we share with you each quarter in addition to that. Our pure-rate, which in the second quarter in middle market was minus 7% and that’s been consistent for the last four quarters between minus 6% and minus 7%. The retention level improved slightly. The economy is starting to have an impact on the exposure changes and specifically in sales and in payroll and therefore is affecting the overall renewal pricing.

I would additionally add that some new business pricing levels, in fact we believe are becoming concerning relative to the overall future profitability of some of those new business opportunities, and we will be taking the appropriate underwriting actions to assure profitability and not slip in that area. As you can see our premium retentions remains solid on obviously, what is very good book of business evidenced by the ongoing loss ratios over the past couple of years.

In addition to that, our new business is consistent with the prior four quarters and driven principally in middle market by [Infotech and MedTech] segments in the new territories we have opened up over the last year in both the Midwest and Mountains state territory. And in small business over the last four to six quarters our new business is remained constant and again has been fueled by the new states and the new programs that we have rolled off.

Turning to page 11 on Personal Lines, the Current Accident Year results were very strong at 58.7% and impact is very little by CATs, as you can see in the Current Accident Year. On a Prior Year Accident basis, our prior year development is driven by increased legal expenses for our (inaudible)/fifth business claims in AutoOne.

Our expense ratio coming in at a very much improved 32.9%, 3 points better than the previous quarters is an improvement reflecting the quarter for 2007 expense actions taken as both traditional personal lines and AutoOne, so all in very satisfactory 97.5% given very competitive market conditions for the quarter.

Turning to slide 12, you can see that on a renewal price change; renewal price change for our Auto Business and traditional personal lines is up 4% for the quarter. We have followed rate increases in five of the eight North Eastern states today.

In addition to that, you will see that the premium retention levels continue consistent with the past, up slightly in Auto and the 102% reflected in Homeowners obviously includes the price change. The New Business levels are consistent with year-over-year, and reflects our Q4 2007 decision to focus on the North Eastern personal lines and no longer in areas outside of that.

Now, I’ll turn it over to Paul for some discussion about the investment results.

Paul McDonough

Thank you, Mike. Turning to investments, as Mike mentioned the total return of the portfolio was 1% in the quarter and 0.9% year-to-date, which in the context to current market conditions are truly exceptional result. On the fixed income side, as illustrated on Slide 13 in the three months ended June 30, the portfolio outperformed the Lehman Index by about 50 basis points reflecting the favorable impact of shorter duration in a rising interest rate environment and in the six months ended June 30, it underperformed the Lehman Index by about 20 basis points reflecting the adverse impact of being underway to treasuries during a general fight to quality.

On the equity side, our portfolio of common stock and convertible bonds managed by prospected partners outperformed the S&P 500 by 550 basis points in the quarter and by 1160 basis points year-to-date, which again are truly extraordinary results.

Importantly on both the fixed income and equity side, our investment managers continue to avoid the major pitfalls of the current market. The asset mix of the portfolio highlighted on slide 14 continues to reflect our total return philosophy with about a third of the portfolio and equity oriented investment, which we believe translate over time to a better risk adjusted total return.

Turning to capital structure and capital management on slide 15, as expected we redeemed the Berkshire preferred stock during the second quarter using assets from the year ago for both grantor trusts that was established with that purpose.

We also completed approximately $9 million of share repurchase in the quarter, which brings our cumulative share repurchase since inception of the program in August of last year was about $95 million leaving roughly a $105 million remaining under the current share repurchase authorization.

Finally, out debt-to-total capital ratio at June 30 was 32%, essentially unchanged from the March 30 level.

And with that I will turn it back to Mike.

Mike Miller

Thank you, Paul. So, in summary, I would reiterate that we had a good quarter. Obviously, the quarter is driven by strong accident year loss ratio results in all of our segments. A very good relative investment performance, as Paul just covered and by our New Business relationship with Hagerty, which we were very excited about.

Going forward, we will continue to focus on underwriting and capital management and producing good results in challenging markets.

And with that, we would be happy to open up for your questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Bob Glasspiegel from Langen McAlenney. Please proceed.

Bob Glasspiegel - Langen McAlenney

Good morning. A couple of questions, first, I was wondering if you give us a little bit more color on Hagerty and what's the profitability of that book versus rest of the specialty book. Is it accretive from the get-goer is there transition cost associated with it? And how long it’s a relationship locked up given that you able to get it from all states just want to make sure that you will be secured for a while?

Mike Miller

Good morning, Bob, it's Mike

Bob Glasspiegel - Langen McAlenney

Hey, Mike.

Mike Miller

A couple of points I’d make. First of all, it is a something that is profitable and therefore accretive from get-go. There were some initial startup cost, but those were all contemplated in my first statement. Second of all, it is a multi-year agreement that we have entered into with Hagerty.

I'd obviously, can't disclose all the details because it's a confidential agreement. But it's multi-year and something that we are excited about for a number of years to come in the future.

Bob Glasspiegel - Langen McAlenney

Okay. My follow up is the '09 and the tax issue, which as I read it White Mountains is backstopping, is there any post '04 issues that we should be aware or it just a historic issues that doesn't have any implications to go forward taxes?

Paul McDonough

Hey Bob, it’s Paul McDonough.

Bob Glasspiegel - Langen McAlenney

Good morning, Paul.

Paul McDonough

Go into the '03 and '04 years and as you mentioned the assessment from the IRS at this stage, which White Mountains intents to appeal, does relate to some restructuring at White Mountains to which OneBeacon an [identification] that essentially fixes our exposure at our book reserve.

Bob Glasspiegel - Langen McAlenney

There is no one going issue that would affect current run rate, that we need to contemplate, just to be clear?

Mike Miller

No.

Paul McDonough

No.

Bob Glasspiegel - Langen McAlenney

Thank you very much.

Mike Miller

Thanks Bob.

Operator

(Operator Instructions). The next question comes from the line Gary Ransom from Fox-Pitt Kelton. Please proceed.

Gary Ransom - Fox-Pitt Kelton

Yes, good morning. I had all set of question on Hagerty, just whether on the written premium that helped this quarter, whether there is, is there a seasonality to that? Does a lot of the written premium come in one particular quarter or is it in fact spread out over the year?

Mike Miller

Yes, good morning Gary, it's Mike. The seasonality as I alluded to in some of my comments, we're short of give you a little heads up that, this quarter is probably about 20% higher than the fourth quarter. So, the second and third quarters are roughly about the same and the first and fourth were a little bit less.

Gary Ransom - Fox-Pitt Kelton

Okay. And just clarification to on the Liberty Mutual agreement, this finishes everything?

Mike Miller

That is for all.

Gary Ransom - Fox-Pitt Kelton

All the disputes and I believe I read that you actually paid something more than the second quarter charge, so you would already had something reserved for this, is that correct?

Paul McDonough

Gary, its Paul. We did have a component of our LAE reserve throughout this dispute. It has related to the ongoing dispute with Liberty. The charge exceeded that specific amount of LAE reserve, which is why we have a charge in the quarter, but I would emphasize that in the context of the legal cost to continue to litigate and arbitrate and as we projected those forward, we are very happy with the settlement and to put this behind us.

Gary Ransom - Fox-Pitt Kelton

Okay.

Mike Miller

And Garyyou'll recall, we've provided in the Q’s and the 10-K's plenty of detail over the previous quarters on that issue.

Gary Ransom - Fox-Pitt Kelton

Right, okay and then just was there anything else of note in the runoff operations of…

Mike Miller

No. Nothing uniform.

Gary Ransom - Fox-Pitt Kelton

Okay. Alright thank you very much then.

Mike Miller

Thanks, Gary.

Operator

Your next question comes from the line of Jay Cohen from Merrill Lynch. Please proceed.

Jay Cohen - Merrill Lynch

Thank you, good morning. I am wondering if you could talk about the claim side, specifically severity, obviously we are reading about a lot of inflation in the general economy and I am wondering from your standpoint how you see it seeping into the claims you’re seeing.

Mike Miller

Good morning Jay, it’s Mike. We have not really seen any noticeable change from the recent quarters in our book on the severity side. We have continued to run in the mid to high single-digit level, that’s consistent across the book of business and to this date, we really haven’t seen a significant change there. I did allude to the fact, not necessarily on the severity side, but obviously on the impact on the customers that we are starting to see impact related to payrolls and projects.

Jay Cohen - Merrill Lynch

Yes, which makes some sense, I am wondering in your comment on severity aren’t be unique we have heard that from others and but whatever when we have read in the paper tells us the price in raw materials is going up, should be costing more to rebuild a building or fix a building one would suspect. Any sense why you are not seeing it?

Mike Miller

Jay there’s nothing that I would note to you or call out again in the second quarter specifically; obviously we had a very good quarter from enacting your loss ratio stand point. We do attract costs on a going basis and I clearly you comment related to the cost of goods may have an impact in the future, but in other parts of the business is, we already noted as well such as Auto obviously there is an impact on driving. So, all in when you mix it together, so far we haven’t seen any notable changes.

Jay Gelb - Lehman Brothers

Great, name is Jay by the way, not Gary I changed it a while ago.

Mike Miller

I am sorry Jay. I’m apologize for that.

Jay Gelb - Lehman Brothers

No problem, Miller and thank you.

Operator

(Operator Instructions). Your question comes from the line of [Sarah Tabusha] from Lehman Brothers.

Sarah Tabusha - Lehman Brothers

Hi, Good morning. Could you walk us through your thoughts on why you filed the shelf offering and why White Mountains registered their shares?

Paul McDonough

Hi, Sarah, it’s Paul. It’s purely a matter of prudent financial management. We think that we should have the flexibility to act with the capital market, when and as necessary. We have zero need to do that presently, from a White Mountains’ perspective because we were filing shelf, they were presented with the opportunity to file their shares.

I think it would have been foolish if not to, for the same reason just to have flexibility in the future. They have also said clearly in the press release that the company be filing that they have no intention to sell at this time. So, that is, that’s a rationale, we realize that it created some short-term noise in the market and I suppose you might argue that should have anticipated and perhaps done something differently, but I think we do the same thing over again. I think it was the right thing to do.

Sarah Tabusha - Lehman Brothers

Okay, thank you.

Operator

You have a follow-up question from Jay Cohen, Merrill Lynch.

Jay Cohen - Merrill Lynch

Yes, thank you. Can you guys talk about, ROE target of North of 13% and its lately in term of this quarter you have been below that and I guess part of the issue is capital in lot of it. And I'm wondering if you could talk about from a capital management standpoint what the plan is and if your debt-to-capital is still over 30% does that constrain you to some extent as far as returning equity to share holders?

Paul McDonough

Hi Jay, it’s Paul. What I would say is we do have undeployed capital and that does present a challenge in terms of the return, as you know, we have been in the market buying back shares, share repurchase continues to be a very compelling use of undeployed capital and the debt also does present a challenge, but and not one that we can’t manage through. And, so I, from a capital management standpoint, that’s the way that we think about the undeployed capital.

Jay Cohen - Merrill Lynch

And what about special dividends were they obviously did that late last year is that something that still on the table or its buyback to more unlikely [rule] given when your stock is trading?

Mike Miller

It’s always an option, Jay. I would say that share repurchase is more compelling. The special dividend is something that made sense at the time given the amount of undeployed capital that we had and the fact that they’re practical limitation around how quickly we can buyback shares, given the amount of public quote, given the amount of daily trading and the fact that our majority shareholder White Mountains is not a seller at current prices.

Jay Cohen - Merrill Lynch

Got it, thanks.

Operator

At this time we are showing you have no further questions. I would like to now turn the call back over to management for closing remarks.

Mike Miller

Okay, thank you everyone for joining us and we look forward to talking to you in next quarter.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference call. You may now disconnect and have a wonderful day.

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